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December 18, 2008

Is there a reason to look at stocks?

The stock market appears to have no direction, up one day and down the next. Many investors are simply staying away from it, while others are suggesting now is the time to buy. Why would anyone want to consider stocks in today's economic environment?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"There are two reasons why now may be the time to get back in the stock market, according to some analysts. One is that the stock market always looks ahead. So, although the economic news may be gloomy right now, the stock market is trying to figure out, where is the economy going to be six to nine months down the road. And some are saying it's actually going to be better. Well, if that's the case, that may send the stock market up. The second is a technical reason, and that is simply that stocks look cheap now. One of the key indicators of that is the so-called price-earnings ratio, and that is below historical averages. So that should suggest that that ratio will come up, meaning prices will come up. Now, a pitfall of that idea may be that, yes, the price-earnings ratio is below averages, but it can still go down. Regardless, I think there are some indicators the stock may be a good buy right now. So if you are a contrary investor and if you have a strong stomach, this may be the time to take a plunge into that volatile market."

Posted by Dave at December 18, 2008 08:00 AM